European Economics and Politics in the Midst of the Crisis (eBook)

P.E. Petrakis is professor of economics at the University of Athens, Department of Economics. His main fields of interest are economic growth, entrepreneurship and economic policy.P.C. Kostis is a PhD candidate at the University of Athens, Department of Economics. His main fields of interests are economic policies in bail-out programs, growth and entrepreneurship.D.G. Valsamis is a researcher at the University of Athens, Department of Economics. His main fields of interest are economic growth, cultural economics and economic policies in Europe.

Contents 6
1: Introduction 10
Part I: The European Crisis 13
2: The Evolution and the Current Status of the European Financial Crisis 14
2.1 Evolution of the European Union 14
2.2 The Historical Evolution of the Crisis 20
2.3 An Initial Approach to the Crisis 23
References 27
3: The Great European Recession 28
3.1 The Costs of the Great Recession 29
3.2 The Redistribution Consequences 32
3.3 The Comeback Lag and the Divergence Evolution 37
References 38
Part II: The Structural Elements of the Crisis 40
4: The European Suboptimal and Segment Areas 41
4.1 The Limitations of Eurozone Member Countries 42
4.2 The Segmented Economic and Social Areas 44
References 48
5: European Stock Asymmetries 49
5.1 Population and Geostrategy Asymmetries 49
5.1.1 Population Balances 50
5.1.2 Geostrategy Balances 53
5.2 The Economic Stock Imbalances 54
5.2.1 Debt: Public and Private 54
5.2.2 Tangible and Intangible Assets 55
References 57
6: European Flow Imbalances 59
6.1 Public Deficits 59
6.2 The External Accounts 60
6.3 Savings and Investments 64
6.4 Employment and Inflation 65
6.5 The Competitiveness Imbalances 66
References 70
7: Culture, Institutions and Politics as Crisis Generators 71
7.1 Cultural Background 71
7.2 Political Balances 73
7.3 Governance 76
7.4 Institutions and Incentives 77
References 81
Part III: The Policy Response 84
8: The Growth Lag and Strategic Choices 85
8.1 The Long-Term Growth Lag 85
8.2 The Growth Priorities 87
8.3 The Attainment of Long-Term Competitiveness and Export Orientation 88
8.4 The Bank-Based Growth 91
8.5 Debt Management 92
References 98
9: Fiscal Policy and Consolidation 100
9.1 The Effectiveness of Fiscal Policy 100
9.2 Contractionary or Expansionary Austerity Policy 102
9.3 Tax-Based Versus Spending-Based Fiscal Consolidations 104
9.4 The Size of Fiscal Multipliers 105
9.5 Fiscal Tightening in a Liquidity Trap 107
9.6 The Role of Perceived Risk of Sovereign Debt 108
9.7 Can Austerity Be Self-Defeating? 109
9.8 Synchronized Fiscal Consolidations and Spillover Effects 112
9.9 Fiscal Consolidation Programs After the Euro 113
References 118
10: The Supply Side Policies 121
10.1 Supply Side Rationale 121
10.2 Structural Reforms 122
10.3 The Required Adjustment and the Adjustment Speed 125
10.4 The Effectiveness of Economic Policy in Europe 128
References 133
11: Monetary Policy 134
11.1 The Imbalanced Monetary Policy 134
11.2 Rebalancing and Inflation 138
11.3 The Effectiveness of Monetary Policy and the Liquidity Trap 141
11.4 The Financial Transaction Tax 142
References 143
12: The Policy of the European Central Bank 145
12.1 The Open Market Operations 145
12.2 The ECB as a Treaty Changer 149
12.3 The Multiple Bond Equilibria 150
12.4 The Euro´s Confidence 153
12.5 The Role of the Lender of Last Resort 155
References 158
13: Restoration of the Banking System and the Banking Deleveraging Process 159
13.1 Contagion and Systemic Risk 159
13.2 The Financial Market Fragmentation 161
13.3 Weak European Banks 163
13.4 The Credit Crunch and the Financing of the Real Economy 165
13.5 The Deleveraging Process 166
References 173
14: The Role of the IMF in the European Evolution 176
14.1 The Character of the IMF 176
14.2 Global Financial Governance and the IMF´s Role 180
14.3 The IMF in Europe 180
14.4 The IMF and Sovereign Debt Management 182
14.5 Conditionality and Supply-Side Policies 184
14.6 The IMF and Domestic Policies 186
References 188
Part IV: The Political Economy of European Synthesis and the Medium Future 190
15: Debates and Choices 191
15.1 The Political Economy Approach: Ideas and Cultural Background Diversification 191
15.2 The Critical Debates 193
15.3 The Social Model Controversy 196
References 199
16: The European Synthesis 201
16.1 The European Response to the Crisis 201
16.2 Fiscal and Macro Management 202
16.3 Financial Stabilization, Banking Sector Reorganization and the Deleveraging Schedule 204
16.4 The Structural Readjustment 211
References 219
17: The Medium-Term Future for the World and Europe 221
17.1 The Medium-Term Future for the World: 2015-2025 221
17.2 The Two Potential Worlds 224
17.3 The European Evolution 226
References 230
18: Economy and Politics 232
18.1 An Integrated Approach to the Crisis and Politics 232
18.2 The Political Economy of the European Crisis 236
18.2.1 Geostrategic Issues and Economic Nationalism 236
18.2.2 Beggar-Thy-Neighbor Policies 240
18.2.3 The Euro as an Exchange and Reserve Currency and the Internal Repercussions 241
18.2.4 The Democratic Deficit and Monetary Policy 242
18.2.5 Political Shift and Economic Policy 244
18.2.6 Towards an Indebted Fragmented European Federation 246
References 255